Doomsday at the stock exchange

KARACHI: Stock investors were in for a rude awakening on Tuesday as the KSE-100 index took a plunge of 1,000 points even be­­fore the opening bell had died down.

As the investors stared at the trading board in disbelief, the market saw shares close at their lower circuits in droves. “It surely is not the day for the faint-hearted,” murmured an old-timer who almost fell on the bench in the trading hall.

By the close of trading, the benchmark index tanked 2,153 points, the biggest-ever single-day decline. The 4.65 per cent decrease is the biggest decline in percentage terms since the last great fall on Feb 25, 2009. The market has dipped 7.5 pc since January. This appears quite bearable, although the market has dro­pped 16.2pc from the index peak on May 24. On Tuesday, Rs403bn was wiped off the shareholders’ wealth.

Only a day earlier, the market seemed to have scored a relief rally with a gain of 1,052 points or 2.33pc. The rally on Monday was led by mutual funds, which turned out to be massive sellers on Tuesday when they disposed of stocks worth $11.6 million. Banks also jettisoned sha­res worth $11.1m. Other local participants cherry-picked, including individuals who bought back stocks worth $3.15m to cover their Mon­day’s oversold positions of $14.7m.

Foreign investors followed the old market maxim: “It’s time to buy when there is blood on the streets.” They bought stocks worth $11.49m, much of it being cherry-picking of heavyweights that had attained attractive valuations following consistent bleeding since their peak on May 25.

According to a stockbroker, two of the three top asset management companies sold equities on Tuesday ostensibly to either meet redemptions or secure their capital-protected funds. Several stockbrokers and dealers conceded that retail investors who were dabbling in second- and third-tier low-priced stocks must already be ruined as they would have suffered a loss of 30-40pc on their portfolios.

Pakistan Stock Exchange CEO Haroon Askari said he would not comment on day-to-day volatility of the market. But he noted that the risk management systems were strong enough to handle the volatility. He observed that there was no clearing house default and, although margins would be collected in the morning by National Clearing Company (NCCPL), there were no indications of any default so far. “The PSX collects margins for three days around 15pc and any shortfall in mark-to-market is collected on a daily basis,” he said.

The Securities and Exchange Commission of Pakistan (SECP), which is the apex regulator of the equities market, is deeply mired in the political crisis engulfing the government.

“The current situation is not related to market mechanism, correction or any fundamental reason. It is only a reaction to the ongoing political situation,” a senior official of the SECP told Dawn. The SECP cannot intervene in daily volatility, nor is there any plan or discussion to impose a floor, he added.

A stockbroker who asked not to be named claimed that for all their faults, the SECP and its officials had tightened regulations, improved reporting standards and closely monitored the brokers. Crackdowns had also struck fear in the hearts of the brokers who had put an end to the practice of ‘in-house badla,’ which led to large-scale defaults by the brokers in the previous market declines.

Raza Jafri, executive director at Intermarket Securities, said it was too early to say if Tuesday’s steep fall would turn out to be a trend or the market would recover. It would be childish to form an opinion on a day’s trend just as a ‘single swallow does not a summer make’, he said. He pointed out that the valuations had turned attractive though.

“With the way this market has closed, the downslide is likely to continue tomorrow, particularly in initial trading. The problem is that there seems to be no viable solution to the political impasse and the risk of confrontation is not too far away. Bottom fishers may be on the lookout but we think this might be akin to catching a falling knife,” analysts at Intermarket Securities said.

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